US tightens financial pressure on Iraq as regional tensions rise

The United States is leaning on Iraq in a familiar way — through its access to dollars — but the timing gives the move a sharper edge.

Washington has halted shipments of US currency to Iraq and paused parts of its security cooperation with the Iraqi military, according to officials cited by The Wall Street Journal. The decision comes as the US pushes Baghdad to distance itself from Iran-aligned groups during the ongoing conflict in the region.

At the center of the move is a blocked transfer of nearly $500m in US banknotes. The cash, tied to Iraqi oil revenues held at the Federal Reserve Bank of New York, was due to be flown into Baghdad but was stopped by the US Treasury. It marks the second time since the US-Israel war on Iran began in late February that a scheduled shipment has been delayed.

On paper, the arrangement is technical. In practice, it reflects a deeper dependency built over two decades.

Since the 2003 US-led invasion, Iraq’s oil revenues have been routed through US-controlled accounts, with large volumes of physical cash periodically shipped back to support the domestic economy. The system was framed as a stabilizing mechanism, but it has also given Washington a lever over Iraq’s financial system — one that can be adjusted when political or security concerns shift.

That leverage is now being used more directly.

The latest pressure follows attacks by Iran-aligned groups in Iraq targeting US military sites and neighboring countries, actions framed by those groups as support for Tehran. The US has responded with air strikes against factions linked to the Popular Mobilisation Forces, which, while formally part of Iraq’s state security structure, maintain close ties to Iran.

Against that backdrop, the suspension of dollar shipments adds a financial dimension to an already complex security dynamic.

Iraq’s central bank has tried to signal stability, stating it has sufficient reserves of US currency, though it did not directly address the halted transfers. For now, US officials describe the suspension as temporary, but have not outlined what conditions would need to be met for shipments to resume.

That ambiguity leaves Iraq in a familiar position — balancing between Washington and Tehran while managing internal pressures.

Prime Minister Mohammed Shia al-Sudani has sought to maintain US support, particularly as he looks ahead politically, while avoiding direct confrontation with Iran-backed groups that hold influence inside the country. The current moment makes that balancing act more difficult.